Towards an Economics of Common Sense

The metaphysical and epistemological basis of economics

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By Chris Cook

The first examination I ever failed was an Economics paper I took as part of an accountancy qualification. I could not understand the subject at all, as it seemed to bear no relationship to Reality as I experienced it. But since I needed a Pass, I learnt it all parrot-fashion, regurgitated it, duly passed, and mentally filed the subject in the bin.

However, in recent years, my work in that space where markets and the internet converge has led me to take a good look at the financial system, and to the subject of the Economics which provides a conceptual framework – and justification – for it.

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I have come to realize that the problem lies in the metaphysical and epistemological basis of Economics – in other words, its relationship with the Reality which we experience. The assumptions, and definitions used are not only couched in language which might almost be designed to confuse, but are also crafted to suit the purposes of those who actually fund the academic development of the subject.

Factors of Production
Neo-Classical Economists in particular define Labour and Capital as the only Factors of Production, and take the anthropocentric view that the Sun of Capital orbits the Earth of Labour. From this we get the rhetoric of productivity and the assumption that when a factory is automated the sole remaining individual whose job it is to turn the factory on and off has magically become infinitely productive.

This is complete self serving bollocks, of course, the sole purpose of which is to justify taxation of Labour rather than Capital. Alternative Economics, such as the Binary Economics advocated by Kelso, Kurland and Shakespeare assume that both Capital and Labour are productive, but they have been largely ignored and otherwise ridiculed by mainstream academics and their cheer-leaders in the Fourth Estate.

However, if we go back into Economic History, we will see that there were previously three Factors of Production posited: Land, Labour and Capital. The reason for the conflation of Land and Capital – which Mason Gaffney describes as the Corruption of Economics – was the imperative need of the rich and privileged to discredit the ideas of the great US political economist Henry George.

Gaffney makes a very convincing case for Neo-Classical Economics as a Strategem against Henry George and the strategem was indeed successful in airbrushing both George -and his concept of a Single Tax on the use value of Land/Location – from Economic History.

The result of the development of Economics in the last 100 years or so has been to develop a bastard strain of Economics one of the principal purposes of which has been to justify the taxation of earned income – Labour, rather than the unearned income arising out of economic rents derived purely from the unearned privilege of private property in Commons such as Land.

The other principal purpose of Economics has been to rationalise the current system of Finance Capital, consisting of the Twin Peaks of Debt and Equity. Firstly, a monetary system based upon the creation of credit by credit institutions aka banks which has virtually no basis on the productive economy, and secondly, a system of absolute property rights – in particular the form of financial capital consisting of shares in a Joint Stock Limited Liability Corporation.

As Professor Michael Hudson has brilliantly demonstrated, the combination of compound interest on debt, and private property in land, has for thousands of years concentrated wealth in the hands of the few to the exclusion of the many. We are in the process of learning once again that this combination is simply unsustainable, and the brilliance of Alan Greenspan’s recent tenure at the US Federal Reserve Bank has been to bring forward this collapse by perhaps ten years.

Cleansing the Augean Stables
The cleansing of our Economic Augean Stables might begin with a new set of Factors of Production.

Location – three dimensional spatial location.

Energy – in the form of electricity, the energy value of fuels, and from other sources.

Knowledge – the accumulated knowledge, experience and talent of a human during his lifetime, or the imperishable and timeless patterns of recorded knowledge and cultural artifacts he leaves behind.

Each of these Factors of Production has a value in use, and each of them is independent of the other two, although all three must necessarily be deployed together when humans act individually, or collectively via a protocol as an enterprise.

Many would agree that each of these Factors (with the exception of an individual’s lifetime knowledge) is in fact a Commons – owned by and available to all – and I agree with Henry George that those who have exclusive rights of use of a Commons should compensate those they exclude.

The current economic crisis results from the fact that wealth has once again become concentrated in the hands of the privileged. We are now seeing massive government intervention, and on the face of it, there is now no shortage of credit available in our existing system. The insuperable problem – which may shortly be recognised as the next wave of defaults commences – is that there are no longer enough credit-worthy projects and individuals to whom to lend.

It will shortly become clear that the necessity is for some kind of systemic fiscal reform. I argue that this is impossible within a paradigm of money created as interest-bearing debt, and the current distribution of Wealth.

The Systemic Fiscal Reform I advocate is neither a revolutionary appropriation by the State nor a redistribution of income. Instead I advocate a transition from the taxation of earned income (since there is no longer enough earned income left to tax) to the taxation of the privilege of exclusive use of Factors of Production.

(a) Location – a Land Value Tax, levied on the use value of location

(b) Energy – Taxation of the use of the Resource Commons, particularly a Carbon Tax; and

(c) Knowledge – a Limited Liability Tax levied on the gross revenues of the Corporation used to “enclose” Knowledge, through employment contracts and Intellectual Property.

There is no way that such systemic fiscal reform would ever be implemented by the institutions which currently exist. Turkeys do not vote for Christmas, and the privileged in control of the Institutions will not give up their privileges.

So what happens now? Will it be default, money destruction and Depression; or money creation, quantitative easing of the Rich, and Inflation?

I argue that it will not be either. The emergence of the direct Peer to Peer connections of the Internet are now enabling the veto of the Institutions to be by-passed through a process I refer to as Napsterisation – after the disruptive software which has changed the music industry for ever. To paraphrase John Gilmore once again…“The Internet interprets privilege as damage and routes around it.”

The architecture of a rational and consensual 21st Century Peer to Peer financial architecture -and a new Economics of Common Sense – may perhaps be based upon a new set of assumptions and definitions, and a new generation of partnership-based protocols linking together a networked society.

2016 April 20

Originally published here.

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